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Introduction of Insurance Product Design. Giang Trí Tường (Eli Chiang) Actuarial Department November 2012. Objectives. Understand the p roduct design process Know the basic pricing methods Describe the risk of insurance operation Know monitoring methods of insurance operation. - PowerPoint PPT Presentation
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Introduction of Insurance Product DesignGiang Trí Tường (Eli Chiang)
Actuarial Department
November 2012
Objectives•U
nderstand the product design process
•Know the basic pricing methods
•Describe the risk of insurance operation
•Know monitoring methods of insurance operation
Product Design Process
Demand Analysis
Demand Analysis
Advanced Thinking: Basic Plan or Rider
•Which product type (basic plan or rider) is better?
Advanced Thinking: Basic Plan or RiderMedical insurance
Benefits
Hospitalization
Home Health care
ICU, BICU
In-patient surgical
Main challenges
Uncertain incidence rate
Faulty Terms and Conditions
Unknown abuse cases
Regional differences
Because Lack of adequate experience, we can't make sure that we can undertake the long-term risk.
“Adjustability” is most important. Rider is better.
Advanced Thinking: Basic Plan or Rider Female insurance
Benefits
Death/TPD
Additional Death/TPD
Maturity Benefit
Spouse Additional Death/TPD
Full moon benefit
Feminine Medical
Main challenges
Brand differentiation
Agent training
Easier to sell
Uncertain incidence rate
Faulty Terms and Conditions
Unknown abuse cases
1. Empirically, women has lower payment ratio and combined medical insurance with other benefits can reduce the medical risk.
2. We need a simple way to training agents.
“Simple, Easy to sell” is more important. Basic plan is better.
Pricing & Evaluation
Three elements of premium
NP
Incidence &
Interest rate
Loading
GP
•Interest Rate: time value of money
•Incidence: payment ratio of insurance benefits
•Loading: operating expense, expected profit, ...
Net Premium = Interest rate + Incidence
calculate reserve, surrender value, etc.
Gross Premium = Net Premium + Loading
real premium that customer pay.
Time Value of Money: Future Value
•A
ssume Interest Rate = 10%, $1 of today's money
Future value is $1.1 in 1-year
Future value is $1.12 = $1.21 in 2-years
Future value is $1.110 = $2.59 in 10-years
Years
Time Value of Money: Future Value (Continued)
Years
Time Value of Money: Present Value
•A
ssume Interest Rate = 10%
$1 in 1-year, present value(today’s money) is $1/1.1 = $0.91 $1 in 2-years,
present value is $1/1.12 = $0.83 $1 in 10-years,
present value is $1/1.110 = $0.39
Years
Time Value of Money: Present Value (Continued)
Years
Mortality Rate
Age (x) Male Female
0 0.263% 0.188%1 0.103% 0.084%2 0.099% 0.080%3 0.097% 0.078%4 0.093% 0.077%… … …97 54.100% 53.724%98 74.515% 74.396%99 100% 100%
1980 CSO (Qx)1980 CSO (Qx)
Age (x) Survival DeathExpected payment
35 1,000,000 2,170 217,000 36 997,830 2,315 231,497 37 995,515 2,479 247,883 38 993,036 2,661 266,134 39 990,375 2,872 287,209 … 987,503 3,111 311,063 97 4,849 2,623 262,348 98 2,226 1,659 165,858 99 567 567 56,725
Expected Payment
Male, 35-years old100 Million Whole Life
# Assume 1 million people survival in the beginning.
number of death = number of survival * Qx
Expect payment = Death benefit * number of death
Expected Payments (1 million people, unit: Million VND)
Year
Net Premium (single premium)
Net Premium (single premium, one people) =
Total Present Value of Expect payments / Number of People
# Assume Interest rate = 10%
NP= 5.9 Million VND
Year
Profit/Loss from Death
Get Profit from Long Survival
•Collect NP = 5.9 Million to pay the death benefit in the future.
•Investment NP (company’s assets) with interest rate = 10%.
•It takes 30 years (Break-even year) to make the assets over death payment.
•We get Loss if insured die before 65 years-old (Break-even age) and get Profit if he Survival more than 65 years-old.
Age
Advanced discussion: Interest rate risk
•If the interest rate drops to 7%, then the break-even age rises to 77 years-old.
•If the interest rate drops to 5%, then the break-even age rises to 93 years-old.
almost impossible to get profit in this case.
Get Profit from Long Survival
Interest rate = 7%
Age
Advanced discussion: Risk of low number of insured
•In mathematics, the expected of Loss = 0.
•In practice, we only get Loss or Profit in one cases.
•If the number of insured is low, then we maybe get a big Loss by some unlucky cases.
•If the number of insured is high, the Loss/Profit will be Stable.
Get Profit from Long Survival
Age
Advanced discussion: Interest rate adjustment
What happens to premium if the interest rate decreases?
Expected payments remain the same
Present value of each Expected Payment increases
Present value of each Expected Payment increases
Net premium increasesNet premium increases
Advanced discussion: Interest rate adjustment (Continued)
Male, 35-years old; 100 Million Whole Life
Advanced discussion: Mortality improvement
What happens to premium if the mortality decreases?
Expected payments will defer
Net premium decreasesNet premium decreases
defer
198CSO x 100% 198CSO x 70%
Advanced discussion: Mortality improvement (Continued)
Male, 35-years old; 100 Million Whole Life
Maintenance & Monitoring
Improve the Product Design
Agent Productivities
The active ratio and productivity is not good!
The Snowball
•Life is like a snowball.
The important thing is finding wet snow and a really long hill.
Build Customer Network
Simple Success Process for Agent
Assist agent to increase activity
•If you don’t care about the customer for one year, then he will not be your customer.
•If you keep to contact customer for 5 years, then he will buy your product someday.
•If he buy your product, then his friend also has the opportunity to buy your product.
A07 makes agent have opportunity to contact customer for 5 years
Establish your future wealth network